Santa Ana College is among the Orange County community colleges that combined have lost millions of dollars in state funding as a result of the county’s decision to withhold $73.5 million annually from the state. Although local community college officials at the time made clear the financial consequences of the county’s 2011 money grab, the county moved forward with its plans anyway.

SANTA ANA – When Orange County community colleges learned in late 2011 that county supervisors were planning to withhold $73.5 million in property taxes from the state, they pleaded with the county not to go forward with the money grab.

In multiple meetings with county staff and supervisors, community college officials said they explained why Orange County’s decision to withhold funds from the state would cause local community colleges to incur an estimated $9.4 million cut.

But the county went ahead with its plans, and the community colleges joined a state lawsuit aimed at forcing the county to relinquish the disputed millions from its coffers.

“The actions of the county were inappropriate,” said Tere Fluegeman of the South Orange County Community College District, which vocally opposed the county’s actions. “We have to do what’s right for our students.”

On Wednesday, an Orange County judge ruled that the county must pay back $147 million – money that should have been sent to the state over the past two years and then redistributed to local schools and community colleges.

At the time of the November 2011 money grab, county officials had argued that local K-12schools would automatically receive the withheld funds anyway, because of a loophole in state law that requires the state to automatically backfill such shortfalls in the districts’ budgets.

No such provision, however, existed for community college districts.

“We had already reduced our budgets by over $800 million since 2007-08” because of state budget cuts, said Dan Troy of the California Community College Chancellor’s Office. “To have one more hit on top of all that certainly put salt in the wound.”

During the court case, county officials argued that recently enacted state laws governing California’s disbursement of vehicle license fees allowed the county to lawfully keep the disputed $73.5 million. The county chose to keep that amount after the state stopped sending about $50 million in vehicle license fee revenue that the county had been receiving for years.

Superior Court Judge Robert Moss, however, did not agree with the county’s interpretation of the two state laws in question, finding “that neither SB1096 nor SB89 are ambiguous.”

COLLEGE FUNDING HITS

In 2011-12, O.C. community colleges took a combined $9.4 million hit because of the county supervisors’ decision, according to data from the county Department of Education.

The Costa Mesa-based Coast district took a $4.6 million hit, the Anaheim-based North Orange County district took a $2.8 million hit and Santa Ana-based Rancho Santiago district took a $2 million hit. O.C.’s fourth community college district, South Orange County, was unaffected because it operates under a different funding formula.

To ease the pain, the state Community College Chancellor’s Office spread the combined $9.4 million cut across the 112-campus system, said Troy, vice chancellor for fiscal and facilities planning. This reduced the impact at the local college districts to a few hundred thousand dollars each.

Meanwhile, the California Community College Chancellor’s Office joined the state Department of Finance in suing Orange County over the money grab.

Troy said that if and when Orange County pays back the funds that Moss decided the county owes the state, the community college share will be spread across the entire community college system.

COUNTY’S MITIGATION EFFORTS

Former county Supervisor Bill Campbell, who left office in January, said that while the community colleges understandably were frustrated by the county’s move, county officials worked diligently with them to mitigate the financial impact.

Early on, Campbell said, the county offered to pay the three affected O.C. community districts – Coast, North Orange County and Rancho Santiago – the $300,000 to $400,000 they would have received if the county had made its full required state payment that year.

The three districts declined the county’s offer, saying they couldn’t take the money while the rest of the districts statewide would get shortchanged, Campbell said.

“We made them a fair offer to pay them in the first year so they wouldn’t be out-of-pocket, and they rejected that,” Campbell said.

Campbell said the money the colleges stood to lose wasn’t significant given the cuts expected by the county – $50 million was the figure the state stopped sending, although the county eventually calculated its withholding at $73.5 million.

With Wednesday’s ruling, Orange County now owes the state an amount equivalent to 11 percent of its annual $650 million general-fund budget – a scenario that raises the specter of an immediate cash crunch and possible layoffs of county staff.

County officials haven’t decided whether to appeal the ruling. The ruling is expected to be discussed at a county supervisors’ meeting Tuesday.

IMPACT ON K-12 DISTRICTS

Although the state backfilled the coffers of all of Orange County’s K-12 districts after the 2011 money grab, K-12 districts were not immune from the county’s actions.

Wendy Benkert of the county Department of Education said that the state’s backfill did not occur in a timely manner, forcing eight O.C. districts to take out bridge loans to tide them over.

If not for the county’s actions, “we would have gotten more state aid sooner,” said Benkert, associate superintendent for business services.

Benkert said that even with the county being the source of the districts’ cash-flow problems, the county treasurer stepped up to the plate.

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